Need for speed drives ASX upgrade

The Australian Securities Exchange will triple the amount of computing real estate it rents to market participants from within its own facilities to boost transaction speeds and keep pace with an escalating technological arms race between broking houses.

The move to dramatically boost the amount of so-called “co-location" facilities follows confirmation by the market operator that it has quietly and seamlessly upgraded its equities, derivatives and futures trading platforms as investors and regulators mull the prospect of a proposed merger with the Singapore Stock Exchange (SGX).

A year in the making,
ASX
’s successful technology overhaul is likely to raise the stakes for a possible merger with the SGX as both exchanges use the NasdaqOMX platform. The Asian exchange is planning a similar overhaul of its systems next year.

ASX group executive for technology Jeff Olsson told The Australian Financial Review the local exchange’s new equities and derivatives platform, dubbed ASX Trade, had cut transaction times from 30 thousandths of a second (milliseconds) to 300 millionths of a second (microseconds) – a one hundredfold increase in speed.

ASX Trade replaces the local exchange’s Integrated Trading System for equities, installed in 2006. This ran without a single outage despite unprecedented market volatility during the global financial crisis that crippled the London Stock Exchange in September 2008.

Traders’ rapacious hunger for speed has been driven by the widespread adoption of algorithmic trading systems that use huge amounts of bandwidth to cut big trading positions into millions of smaller transaction parcels that are then sprayed across the market to maintain competitive advantage by hiding their origin.

Investment funds and merchant banks have for the past year been furiously installing new infrastructure, fed by high-capacity fibre-optic cable, to take advantage of the lowered transaction times. It is understood ASX is seeking to drop equities transaction times to around 100 microseconds.

“We are not seeing people say ‘slow the system down’," Mr Olsson said. “When we put a new system out, the participants have to code, come in on weekends and test changes to the system to make sure they can go live at the same time. Participants put a huge amount of effort into their systems."

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But the race to push transactions as close as possible to the speed of light has driven a surge in demand for so-called co-location facilities that house broker-owned “black box" trading infrastructure.

The sharp increase in computing capacity requirements by ASX has led it to commission a $32 million data centre expected to be operational by the end of next year.

The expansion of computing real estate offers ASX a lucrative sideline as brokers usually will pay premium rates to access the facilities. But Mr Olsson declined to say if the new facilities will be fully occupied when it opens. “We haven’t been out there hawking the space yet because we want to ensure that all the delivery timetables are met," he said.

ASX’s tech chief played down the impact of proposed regulatory changes, including a software “kill switch" to eliminate aberrant trading algorithms.

“There is still a lot of work to be done on market rules," Mr Olsson said. “Once those rules are established we will build them into requirements for the next set of changes to the system."